Geopo­lit­i­cal Fears Wear on Clients

Risk tol­er­ance con­tin­ues to erode, and re­tire­ment con­tri­bu­tions throt­tle back after tax sea­son, reach­ing the low­est level ever.

Financial Planning - - Benchmark - By Harry Ter­ris

Wor­ries about a po­ten­tially dam­ag­ing trade war, among other risks, are keep­ing clients un­set­tled, ad­vi­sors say.

Other con­cerns in­clude the see­saw­ing fight be­tween pro­tec­tion­ist hard-lin­ers and more-main­stream free-trade ad­vo­cates in the Trump ad­min­is­tra­tion, as well as off-again, on-again en­gage­ment with North Korea and re­newed wor­ries about the in­tegrity of the euro. “Clients are more anx­ious with all the geopo­lit­i­cal risks,” one ad­vi­sor sum­ma­rizes.

Over­all, clients’ ap­petite for risk has con­tin­ued to erode, ac­cord­ing to the lat­est Re­tire­ment Ad­vi­sor Con­fi­dence In­dex — Fi­nan­cial Plan­ning’s monthly barom­e­ter of busi­ness con­di­tions for wealth man­agers. At 47.6, the com­po­nent track­ing risk tol­er­ance reg­is­tered its fourth con­sec­u­tive month in neg­a­tive ter­ri­tory. Read­ings be­low 50 in­di­cate a de­cline and read­ings above 50 in­di­cate an in­crease.

“I be­lieve that we will con­tinue to see in­creased volatil­ity in the mar­ket­place this year — much higher than 2017,” one ad­vi­sor says.

The neg­a­tive trend for risk tol­er­ance is help­ing to keep the com­pos­ite rel­a­tively low at 52.2, a drop of 0.6 points. In ad­di­tion to risk tol­er­ance, the com­pos­ite tracks in­vest­ment prod­uct se­lec­tion and sales, client tax li­a­bil­ity, as­set al­lo­ca­tion, new re­tire­ment plan en­rollees and plan­ning fees.

The slip in the com­pos­ite was also heav­ily in­flu­enced by an 11.2-point slump in the com­po­nent track­ing con­tri­bu­tions to re­tire­ment plans, to 50.5, and a 7.1-point drop in the com­po­nent track­ing the num­ber of re­tire­ment prod­ucts sold, to 50. Ad­vi­sors largely at­tribute those de­clines to a sea­sonal pat­tern in which con­tri­bu­tions and sales typ­i­cally plum­met after a rush of client ac­tiv­ity as­so­ci­ated with tax sea­son. One ad­vi­sor says the “post-tax sea­son drop-off was ex­pected.”

Still, the 50.5 read­ing for con­tri­bu­tions was the low­est since RACI was cre­ated in mid-2012, and the read­ing of 50 for sales was the sec­ond low­est of that com­po­nent. “More clients are less will­ing to start new re­tire­ment plans due to stock mar­ket volatil­ity,” one ad­vi­sor says.

To be sure, some wealth man­agers say clients are tak­ing the volatil­ity in stride as long as eco­nomic fun­da­men­tals re­main sound, and that price swings are cre­at­ing buy­ing

op­por­tu­ni­ties. “Volatil­ity in the mar­ket is a pop­u­lar topic with my clients, but they are com­forted in know­ing that their port­fo­lios are al­lo­cated so as to dampen some of that volatil­ity,” one ad­vi­sor says.

Other ad­vi­sors re­port their clients are per­form­ing care­ful re­views of in­di­vid­ual po­si­tions and at­ti­tudes. “Risk tol­er­ance has been all over the spec­trum,” an ad­vi­sor says.

Ad­vi­sors also say clients are di­vided about how the new tax law will im­pact the econ­omy, and are strug­gling to un­der­stand what it means for them per­son­ally.

The RACI com­po­nent track­ing clients’ an­nual tax li­a­bil­ity, which has been gy­rat­ing since the tax over­haul was signed in De­cem­ber, swung sharply into pos­i­tive ter­ri­tory, jump­ing 9.7 points to 54.2.

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